[ EDITORIAL ]

National Catastrophe: Pool Disaster Risk

Published: Friday, December 7, 2012 at 12:05 a.m.

Last Modified: Friday, December 7, 2012 at 12:05 a.m.

If the U.S. Congress sticks to the terms of the 2011 Budget Control Act, the federal government will substantially limit spending on natural-disaster relief.

Under the act, the government would spend less than 60 percent of the amount spent annually on relief and recovery during the previous 10 years.

Who thinks the costs of recovering from natural disasters — hurricanes, tornadoes, earthquakes and the like — will go down significantly during the next year or decade?

Consider this: The Federal Emergency Management Agency, which administers the bulk of disaster-relief programs, was allocated $7 billion this year — the same amount as the earliest estimate of uninsured property losses caused by a single event, Hurricane Sandy.

Under the budget act's formula, Congress would be required to hold annual disaster-relief funding to about $7 billion annually — a level far too short.

In anticipation of this impending budget crunch, U.S. Rep. Albio Sires introduced HR 6477 — in late September, before Sandy struck the Northeast — to create a national catastrophe fund. Sires, a Democrat from New Jersey, proposes that insurance companies pay premiums on policies they issue in participating states.

The premiums would, the legislation says, "pre-fund future natural catastrophe recovery by making available for purchase ... contracts for reinsurance coverage." The legislation also would create a publicly operated oversight board that would provide liquidity loans to state catastrophe funds to expedite payment of claims.

MAKE INSURANCE AFFORDABLE

Among the goals are to make insurance more affordable to more Americans, provide statewide companies with access to low-cost capital on a national scale and reduce uninsured losses.

Florida has a catastrophe fund with a sensible reserve. The Sires bill would nationalize and broaden the risk pool for states, a move that some nationwide private insurers and groups such as ProtectingAmerica.org have supported. Financial backing from a national pool would help Florida, which has undercapitalized insurers in the private windstorm market.

Five years ago, the U.S. House of Representatives passed a bill, introduced by two Florida Democrats, similar to the Sires legislation. That bill stalled in the Senate despite support from Florida's senators, Democrat Bill Nelson and Republican Mel Martinez.

This isn't only a coastal issue. A private firm, Risk Management Solutions, estimates that 57 percent of the American population lives in areas prone to natural catastrophes.

James Lee Witt, a former director of FEMA, and retired Adm. James Loy have argued on behalf of ProtectingAmerica.org that establishing a funded catastrophe fund would be forward-thinking and fiscally responsible — especially in light of spending limits in the Budget Control Act.

That makes sense.

Americans know that natural disasters will continue, perhaps with increased frequency and intensity. The only questions are: Will the nation plan for this eventuality? If so, how will America fund repair and recovery?

<p>If the U.S. Congress sticks to the terms of the 2011 Budget Control Act, the federal government will substantially limit spending on natural-disaster relief.</p><p>Under the act, the government would spend less than 60 percent of the amount spent annually on relief and recovery during the previous 10 years.</p><p>Who thinks the costs of recovering from natural disasters — hurricanes, tornadoes, earthquakes and the like — will go down significantly during the next year or decade?</p><p>Consider this: The Federal Emergency Management Agency, which administers the bulk of disaster-relief programs, was allocated $7 billion this year — the same amount as the earliest estimate of uninsured property losses caused by a single event, Hurricane Sandy.</p><p>Under the budget act's formula, Congress would be required to hold annual disaster-relief funding to about $7 billion annually — a level far too short.</p><p>In anticipation of this impending budget crunch, U.S. Rep. Albio Sires introduced HR 6477 — in late September, before Sandy struck the Northeast — to create a national catastrophe fund. Sires, a Democrat from New Jersey, proposes that insurance companies pay premiums on policies they issue in participating states.</p><p>The premiums would, the legislation says, "pre-fund future natural catastrophe recovery by making available for purchase ... contracts for reinsurance coverage." The legislation also would create a publicly operated oversight board that would provide liquidity loans to state catastrophe funds to expedite payment of claims.</p><p> </p><p><b>MAKE INSURANCE AFFORDABLE</b></p><p>Among the goals are to make insurance more affordable to more Americans, provide statewide companies with access to low-cost capital on a national scale and reduce uninsured losses.</p><p>Florida has a catastrophe fund with a sensible reserve. The Sires bill would nationalize and broaden the risk pool for states, a move that some nationwide private insurers and groups such as ProtectingAmerica.org have supported. Financial backing from a national pool would help Florida, which has undercapitalized insurers in the private windstorm market.</p><p>Five years ago, the U.S. House of Representatives passed a bill, introduced by two Florida Democrats, similar to the Sires legislation. That bill stalled in the Senate despite support from Florida's senators, Democrat Bill Nelson and Republican Mel Martinez.</p><p>This isn't only a coastal issue. A private firm, Risk Management Solutions, estimates that 57 percent of the American population lives in areas prone to natural catastrophes.</p><p>James Lee Witt, a former director of FEMA, and retired Adm. James Loy have argued on behalf of ProtectingAmerica.org that establishing a funded catastrophe fund would be forward-thinking and fiscally responsible — especially in light of spending limits in the Budget Control Act.</p><p>That makes sense.</p><p>Americans know that natural disasters will continue, perhaps with increased frequency and intensity. The only questions are: Will the nation plan for this eventuality? If so, how will America fund repair and recovery?</p>